European regulators are breaking something that didn't need fixing; by pushing banks to issue senior non-preferred (SNP) debt instead of traditional senior bonds, they risk inadvertently shutting many of the region's neediest lenders out of the funding market.
The securities are senior in name only - they can be turned into equity in the event of a catastrophe in the same way as junior debt. With the collapse of Banco Popular Espanol fresh in investors' minds, weaker lenders are struggling to find buyers for what should be the most basic form of bond funding. Banks in the euro zone have issued just €19 billion (Dh86.05bn) of senior non-preferreds this year - less than a third of what they sold in preferred senior debt in 2015. Regulators may need to rethink.
Senior non-preferreds, also called Tier 3 debt, sit above subordinated tier 1 and tier 2 in a bank's capital hierarchy. They rank below a bank's operating liabilities, putting them in the firing line once equity and subordinated capital are exhausted.
That ticks the right boxes for regulators trying to safeguard taxpayers from the costs of any bank failure. But for any new asset class to be a success it needs to function for investors and issuers as well. At the moment there is something of an impasse, where banks without investment-grade ratings are finding it tougher and more expensive to raise funds.
Thursday's senior non-preferred deal from banksis a case in point. It's only the second Italian bank to brave the new market, following UniCredit's January offering. And as the lowest-rated entity to issue SNPs, it's an important test of investor demand.
While UBI's senior rating is just above investment grade, it has a split personality when it comes to SNPs: Fitch Ratings has the same BBB- rating, but the grade at Moody's Investors Service is three steps lower at Ba3. That clearly put some investors off.
Despite holding a full investor roadshow for a benchmark transaction, UBI was only able to unearth sufficient demand for a €500 million deal. With more than €15bn of debt maturing by the end of next year, the bank may question whether it was worth the effort. While the order book did finally reach €1bn, the bank paid 80 basis points more than for its preferred senior bonds, offering a spread over mid-swaps of 140 basis points.
While French banks with solid investment grade credit ratings have been able to issue SNPs successfully - paying on average an extra 25 to 30 basis points more than their traditional five-year preferred senior debt - the market isn't proving to be as accessible or cost-effective for their Italian counterparts, which are having to offer three times that premium. The same will be true for other mid-tier domestically-focused EU banks with weaker credit ratings.
Changing the rules of the game for senior funding blurred the line between what is regulatory required bank capital, that can be easily bailed-in, and what is a straightforward source of funding. Conflating the two exposes senior debt investors to a whole new level of risk, and makes it harder and more expensive for lower-rated banks to readily access a vital source of liquidity.
That's not healthy for the EU banking system. If left unresolved, shutting some banks out of the market for senior secured funding, it could even contribute to another banking crisis.
Bloomberg
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Biog
Mr Kandhari is legally authorised to conduct marriages in the gurdwara
He has officiated weddings of Sikhs and people of different faiths from Malaysia, Sri Lanka, Russia, the US and Canada
Father of two sons, grandfather of six
Plays golf once a week
Enjoys trying new holiday destinations with his wife and family
Walks for an hour every morning
Completed a Bachelor of Commerce degree in Loyola College, Chennai, India
2019 is a milestone because he completes 50 years in business
SPECS
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COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
Business Insights
- Canada and Mexico are significant energy suppliers to the US, providing the majority of oil and natural gas imports
- The introduction of tariffs could hinder the US's clean energy initiatives by raising input costs for materials like nickel
- US domestic suppliers might benefit from higher prices, but overall oil consumption is expected to decrease due to elevated costs
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
Squid Game season two
Director: Hwang Dong-hyuk
Stars: Lee Jung-jae, Wi Ha-joon and Lee Byung-hun
Rating: 4.5/5
RESULT
Bournemouth 0 Southampton 3 (Djenepo (37', Redmond 45' 1, 59')
Man of the match Nathan Redmond (Southampton)
Star%20Wars%3A%20Episode%20I%20%E2%80%93%20The%20Phantom%20Menace
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MATCH INFO
Uefa Champions League semi-finals, second leg:
Liverpool (0) v Barcelona (3), Tuesday, 11pm UAE
Game is on BeIN Sports
Company%20Profile
%3Cp%3E%3Cstrong%3ECompany%20name%3A%3C%2Fstrong%3E%20Hoopla%3Cbr%3E%3Cstrong%3EDate%20started%3A%20%3C%2Fstrong%3EMarch%202023%3Cbr%3E%3Cstrong%3EFounder%3A%3C%2Fstrong%3E%20Jacqueline%20Perrottet%3Cbr%3E%3Cstrong%3EBased%3A%3C%2Fstrong%3E%20Dubai%3Cbr%3E%3Cstrong%3ENumber%20of%20staff%3A%3C%2Fstrong%3E%2010%3Cbr%3E%3Cstrong%3EInvestment%20stage%3A%20%3C%2Fstrong%3EPre-seed%3Cbr%3E%3Cstrong%3EInvestment%20required%3A%3C%2Fstrong%3E%20%24500%2C000%3C%2Fp%3E%0A
COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
School counsellors on mental well-being
Schools counsellors in Abu Dhabi have put a number of provisions in place to help support pupils returning to the classroom next week.
Many children will resume in-person lessons for the first time in 10 months and parents previously raised concerns about the long-term effects of distance learning.
Schools leaders and counsellors said extra support will be offered to anyone that needs it. Additionally, heads of years will be on hand to offer advice or coping mechanisms to ease any concerns.
“Anxiety this time round has really spiralled, more so than from the first lockdown at the beginning of the pandemic,” said Priya Mitchell, counsellor at The British School Al Khubairat in Abu Dhabi.
“Some have got used to being at home don’t want to go back, while others are desperate to get back.
“We have seen an increase in depressive symptoms, especially with older pupils, and self-harm is starting younger.
“It is worrying and has taught us how important it is that we prioritise mental well-being.”
Ms Mitchell said she was liaising more with heads of year so they can support and offer advice to pupils if the demand is there.
The school will also carry out mental well-being checks so they can pick up on any behavioural patterns and put interventions in place to help pupils.
At Raha International School, the well-being team has provided parents with assessment surveys to see how they can support students at home to transition back to school.
“They have created a Well-being Resource Bank that parents have access to on information on various domains of mental health for students and families,” a team member said.
“Our pastoral team have been working with students to help ease the transition and reduce anxiety that [pupils] may experience after some have been nearly a year off campus.
"Special secondary tutorial classes have also focused on preparing students for their return; going over new guidelines, expectations and daily schedules.”
The specs
Engine: 2-litre or 3-litre 4Motion all-wheel-drive Power: 250Nm (2-litre); 340 (3-litre) Torque: 450Nm Transmission: 8-speed automatic Starting price: From Dh212,000 On sale: Now
